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Favorite Volatility Strategy


#1

What are everyone’s favorite volatility strategies and why?


#2

My favorite volatility strategy is wait until next market correction and check who is “the last man standing” in volatility strategies.


#3

There are a lot of very good ones with varying degrees of risk/reward.
I definitely wouldn’t subscribe to just 1.
At the top of my list though is David Juday Smart Volatility Long. A nice happy median of steady returns plus minimal drawdown. It works well in my IRA.
In my taxable account, I will be subscribing to his Smart Volatility Short soon. A little more risk/reward.
If you are looking for something maybe a little more risky ( looking at their last 12 months, you sure couldn’t tell ) consider making Volatility Returns a part of your portfolio too. I did. Their subscription price goes up in May. Still, it’s a bargain in my opinion.


#5

Swing: Roll Yield and VRP

Intraday: Elite Vol Trader

More info: http://www.vixstrategies.com/


#6

Don’t you run these two? It seems like this thread is asking subscribers which ones they (objectively) favor…


#7

Before, I use Fast Nickel and UVXY Trade but the combination makes difficult because they are using the same instrument, one model short and another model buy , so you only have left what ever left from the discrepancy.

Since I want have bigger return, I changed Fast Nickel to XIV Timer. I also use Smart Volatility Short. SVS employ several instruments for protection.

Like right now, SVS has long for SVXY , on the other hands, XIV timer has short SVXY. Now, you will see the discrepancy again at my acct. It will be nice if those example that I explained to you ,give a positive result, but it is not in my case right now.

Another issue, when I use SVS, I am truly understood that the developer use other instruments for protection. But when I have CKNN model ( he always have long for either NUGT or DUST), this is not good combination because :

  1. You will lose that protection, especially when SVS has short positions.
  2. IB has no sufficient contract inventory for short position all the time. When CKNN closed position, and the SVS has short position for the same instrument, it will takes sometime (can be several days ) until you will have short positions from either NUGT or DUST.

Btw, I will not use 2 models from the same developer, especially if those model has same chart movement such as : one is conservative and another is aggressive. That’s not the purpose for diversifying risk n return.


#8

Xiv Strategy is just what I was looking for. It is easy to trade manually, they have very few trades a year and issue them pre-market. They are either long XIV or in cash and use no leverage. It’s perfect for an IRA since they don’t day trade, short or use margin. Upon request, they will send you their backtest data starting in 2005 so you can see the drawdowns and how long they lasted.

I have been trading volatility since 2013 and have done fairly well on my own but have been searching for a system on C2 to improve my performance and avoid some of the bumps along the way. It really helped to see the backtest data from Xiv Strategy to see that they were more successful in several of the periods where I had floundered and never did worse than I had done. It also provided a level of trust because they were willing to back up their claims of performance prior to being tracked on C2.

I have subscribed to several other volatility systems on C2 that turned out to be too risky or started doubling down on losses when that had not been done earlier. Many of them shot the moon on long volatility trades (such as UVXY) only to give up months of profits. Going long volatility is one of the hardest things to time correctly, for the most part it’s more like buying a lottery ticket. I would still like to find a system that did that well but have yet to see one on C2.

The developers of Xiv Strategy are very responsive to questions. If you subscribe to one of their systems, they give you a free subscription to all their other systems on C2.


#9

I have only been on C2 for 6 months but I’m a big fan of David Juday’s Smart Volatility Long strategy. For the following reasons:

  • He’s a great communicator. Even took the time to put together a comprehensive webinar explaining his strategy and risk-mitigation techniques.
  • Transparent. Along with the above he also sends messages providing peace of mind and explaining big events.
  • Sensible trader. Doesn’t make emotional desicions. Sticks to the principles of his strategy.
  • As an Australian subscriber my broker doesn’t allow me to short options or anything else so having a long option for volatility is ideal.
  • And of course, good value & great performance.

#10

I actually just subscribed to his short strategy. Is there anyway that webinar was recorded? I would like to view/listen to it.


#11

May be you can just asked him, After you watch his video, you will feel confident how he manages his acct. Just make sure you understand, there is still potential big risk but he is the only developer that has appropriate protections. Btw, he also explained what is the worst scenario when bad things happens for each models.


#12

Does anybody know if there is any other volatility strategy besides the ones of David Juday where the risk in case of a black swan event is at least partially hedged? By partially hedged I mean that your account won’t get annihilated or worse that you end up owing your broker a big chunk of money.


#13

@KarlA yes, if you follow my volatility strategy proportionally you will never get your account to 0. But you shouldn´t expect p.a. % returns in the 100´s. If you´re interested I can provide the backtest.
For more information please see this forum thread about my strategy: New and conservative Vola Strategy 100%TOS

strategy link: https://collective2.com/details/110612319


#14

Hi KarlA,

Our intraday volatility strategy eliminates overnight risk (arguably the largest risk vol strategies face), so it is protected from black swan type events.

More info: http://www.vixstrategies.com/elitevoltrader/


#15

Thanks AlexanderG and VIXStrategies, I have both systems on my watch list. I am just thinking, if you can get a 30% CAGR after fees, lets say in a tax free IRA account, a 50K account will grow in 10 years to about 690K - the magic of compound interest.


#16

Karl, good luck with your investment strategy. I think it is a safe bet that most of these Volatility strategies will not be here in ten months, say nothing of ten years. Single market trading systems will show diminished returns, if not outright failure, over time. Efficient markets gravitate to a successful strategy and render it neutral. Always have and always will.


#17

That’s a safe bet you are likely to lose, GSPTrader. The volatility risk premium will persist (hedgers will pay to go long volatility to protect other investments), just as it always has. When the VRP is positive, short vol (XIV) will largely do well, and the VRP is negative it’s time to buy vol. Back and forth it goes. Always has and always will, and it drives the volatility strategies with a tailwind difficult to find in any other asset class.


#18

Of course, institutions, hedge funds, and large traders are unaware of this anomaly. They are just leaving the easy money on the table for the small traders with C2 to gather up.


#19

In the early eighties, I worked as a geologist in petroleum exploration, Gulf of Mexico. After a lengthy technical review of a new oil prospect, a really fine presentation by a colleague of mine, one veteran manager who didn’t like it but couldn’t find a reason, simply said “If it’s such a great prospect, why hasn’t anyone drilled it yet?” That’s the same argument you make: if there’s money to be made, why aren’t the big fish raking it in? Risk aversion persists in every field, in infinite varieties. The Big Short looks almost obvious with 20/20 hindsight, but it’s damn hard to see opportunities when one doesn’t want to see. I’m not a hedge fund manager, nor have I worked for an institution, nor have I been a “large trader”, so I cannot speak for any of them. They all have their reasons for what they do (and I hear that capital preservation and low drawdowns are very high on that list). But for now, the volatility risk premium works and works well, and I expect to be chasing it at least until I retire in a decade or so.


#20

I might buy your argument if this was Lumber, OJ, or some other lightly traded market. But, this is one of the most actively traded markets. The more volume, the more efficient the market. Profit margins shrink. Little fish get eaten by the larger fish. We are krill. There are a lot of whales out there.


#21

I don’t think some volatility developers or investors on C2 fully understand the volatility ETNs, such as XIV, VXX, and UVXY.

If there is a drop in the market like the one that happened in October 1987, it is possible that XIV would lose 80% of its value in 1 day, and thus liquidate/terminate the ETN for 20% of its prior day value. This is to prevent the fund from going negative.

You can read more at Six Figure Investing:

https://sixfigureinvesting.com/2011/06/ivo-and-xiv-termination-events/

In the prospectuses for XIV, there are some disconcerting discussions about termination events. For XIV the termination event is triggered if the daily percentage drop exceeds 80%. I did some digging into these events to try and figure out how likely they are to occur. . . .

First of all XIV provisions for termination/acceleration relate to volatility futures not the CBOE’s VIX index. The VIX relates to the instantaneous implied volatility of the S&P 500—which is a different thing. . . . XIV is based on the two futures contracts that are closest to expiration, the administrators for these funds adjust their positions in these contracts daily to achieve an effective average time till expiration of 30 days.

VXX does the same thing, except it is trying to be long volatility, not short/daily inverse % of volatility. When trying to understand XIV you can view them as being a short position in VXX , or tracking the opposite daily percentage move of VXX (XIV).

VXX is not as volatile as the VIX index. On a day with sharp market moves VXX will typically move about half the percentage move of what VIX does. VXX can still make big moves however—one day during the May 2010 Flash Crash, it jumped almost 25%—the VIX on that day jumped 46%.

Now we can talk about termination / acceleration. . . .

With XIV, termination (or “acceleration” in marketing speak) relates to daily percentage moves. If VXX jumped more than 100% in a day, then if VelocityShares didn’t terminate XIV its notational value could go to zero. They avoid this particular unhappy situation by terminating the fund if the daily move of VXX is 80% or more—although losing 80% in one day would still be plenty traumatic.

I should add that a similar thing applies to shorting, which I assume pretty much everyone understands. If you are short VXX or UVXY and their price doubles (over a day, a week, or a month), your initial investment in that ETN is wiped out completely and you are liable for losses in excess of your investment if the ETN continues to move higher.